It is no secret that Florida's property insurance market is far from healthy. More than 1 in 4 homeowners are insured by the state-run Citizens Property Insurance Corp., and private coverage remains unaffordable or unavailable in many areas. But it also is no secret that too many state legislators are too cozy with insurers, and their free-market proposals are not the answer.
House Republicans have taken the most extreme anticonsumer position. The legislation (HB 447) scheduled for a House vote today would enable insurers to raise rates up to 10 percent a year statewide and up to 20 percent on individual homeowners without seeking traditional regulatory approval from the state. Insurers are lobbying hard for the flexibility, arguing they are losing money in Florida despite several hurricane-free storm seasons. But the free-market principles espoused by the bill's supporters don't work for property insurance, because homeowners with mortgages must have coverage and their options are limited.
At least the Senate has offered a more palatable compromise. The bill (SB 2044) now says insurers could raise their rates by up to 10 percent a year for individual homeowners with the approval of state regulators. The House bill essentially ends all review by regulators, and insurers would be looking out for themselves while no one looks out for homeowners. No wonder Gov. Charlie Crist has threatened a veto.
The fate of rate regulation is not the only concern in these bills. Other provisions also would hurt consumers more than help them. For example, homeowners with replacement coverage would no longer be able to get all of their money up front for damage to their homes or contents. That would make it harder to get homes repaired after storms and create more hardship and expense for families already suffering enough.
Then there is the bait-and-switch on mitigation efforts. For several years, the state has wisely encouraged homeowners to invest in reinforced garage doors, storm shutters and other improvements to harden their houses and reduce the potential for hurricane damage. In return, insurers were required to offer mitigation discounts. But now the insurers are complaining the policy worked too well and costs them too much money. Mitigation discounts need to be better linked to the actual savings in avoided damages, but legislators are going too far in allowing insurers to reduce the discounts or raise rates to make up for the cost of the discounts.
Legislators are on the right track in some areas. For example, they would increase the amount of capital required for new insurers, and they are pursuing a variety of antifraud efforts related to home inspections and mitigation discounts. But on balance, they are listening too closely to insurance lobbyists and not acknowledging consumer concerns in a difficult economy. The governor should keep his veto pen ready.
The trends in property insurance are not all bad. Reinsurance costs for insurers have declined or stabilized. Citizens now has more than $13 billion in cash and financing available, enough to handle a 1-in-25-year storm. And with good luck, Florida will be better positioned after another hurricane-free season.
Ultimately, though, for this state to avoid financial disaster after a major hurricane there will have to be far broader solutions than those the Legislature is offering. Congress still needs to pass a national catastrophe plan to help spread the risk of major storms. And Florida still needs to seriously study whether it would make sense for the state to collect premiums and insure against hurricane risk in return for private insurers servicing the policies and insuring everything else. Until then, legislators are just tinkering around the edges at homeowners' expense and hoping for the best.